Cost Analysis for Warranted Products Protected by Lemon Laws Considering Failure Interaction

Abstract

This study develops warranty cost models for a warranted product under the lemon laws protection. The product considered in this study is a multi-component system consisting of critical and non-critical components. The Failure of either component can cause the product to fail. The product is declared a lemon if recurrent failures of the critical component occur—i.e., the number of the failures reaches the threshold value, k (e.g., four failures). Furthermore, this study assumes that a failure of the critical component can occur naturally or induced by a failure of the non-critical component. Hence, two types of failures are considered—i.e., a natural failure and an induced failure. Whenever a lemon is declared, the customers can opt for either (i) a refund or (ii) a replacement warranty claim. Hence, this paper provides the warranty cost models for the two cases—(i) refund and (ii) replacement then encounters the optimal lemon law period that minimizes the expected warranty cost rate. The numerical examples are provided to illustrate the expected warranty cost and the optimal lemon law period.